Ninth Circuit Halts Oil-for-Food Contracts Lawsuit

By Robyn Hagan Cain on July 18, 2012 3:02 PM

The Ninth Circuit Court of Appeals made it harder for plaintiffs to enforce contracts against countries claiming sovereign immunity this week.

In a 2-1 panel decision, the court concluded that Iraq is not liable for the end of two oil-for-food contracts dating from the Saddam Hussein regime, and that the current Iraqi government is insulated from liability under the Foreign Sovereign Immunities Act (FSIA) because the case did not involve "legally significant" U.S. commercial activity, reports Reuters.

The case stemmed from a 2003 lawsuit involving an Iraq state-owned oil company's decision to cancel contracts to sell five million barrels of oil to two Cyprus-based companies owned by Manuel Terenkian, a U.S. citizen. The contracts were permitted under the United Nations Oil for Food Program. Terenkian said the state oil company canceled the contracts with his companies after he refused to pay bribes, and sued to recover the loss of more than $6.25 million in fees, according to Reuters.

In 2010, a Los Angeles district court held it had subject matter jurisdiction to hear this action -- notwithstanding Iraq's assertion of sovereign immunity under FSIA because the lawsuit fell within the "commercial exception" to sovereign immunity.

The Ninth Circuit Court of Appeals, however, disagreed.

Judge Sandra Ikuta, writing for the majority, said it would be improper to hold Iraq's current government liable for wrongdoing because the contracts lacked sufficient links to the United States, Reuters reports. "Although we may decry the practices conducted by the regime of Saddam Hussein, we best serve our nation's principles of equity and justice by applying the law in a fair and even-handed manner to all parties before us."

Judge John Noonan noted in his dissenting opinion that the Ninth Circuit had previously held that Nigeria could be sued when it entered into contracts for the computerization of oil fields through a government-owned corporation. Noonan wrote, "As we observed 'there is nothing uniquely sovereign about computerizing oil fields.' So here there is nothing specifically sovereign about bartering oil."

Do you think there's enough of a difference between the Nigerian computerization contracts and the oil-for-food contracts to warrant the distinction?

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U.S. Ninth Circuit features news and information from the U.S. Court of Appeals for the Ninth Circuit, which hears appeals from U.S. District Courts in Alaska, Arizona, California, Guam, Hawaii, Idaho, Nevada, Northern Mariana Islands, Montana, Oregon and Washington. This blog also features news that would be of interest to legal professionals practicing in the 9th Circuit. Have a comment or tip? Write to us.